State of Innovation

Patents and Innovation Economics

Alice Files Petition for Writ of Certiorari

Alice Corp. in Alice v. CLS Bank filed a petition for writ of certiorari with the Supreme Court on September 4, 2013.  Alice sued CLS Bank for infringement of USPNs 5970479, 6912510, 7149720, and 7725375.  All the claims were held patent ineligible under 35 USC 101 at the district court and the CAFC en banc decision also found all the claims ineligible under 35 USC 101.

The petition makes it abundantly clear that the standard for determining if software enabled inventions are patent eligible material is FUBAR, but what it does not state that is that the Supreme Court is responsible for this mess.

I found it interesting and unusual that the Petition cited in the table of authorities works by at least three registered patent attorneys (Dennis Crouch, Gene Quinn, John Kong, Robert Sachs) instead of just relying on the opinions of people who have never written a patent and could not write a claim for a mouse trap e.g., Mark Lemley, who is also cited and amazingly is considered a professor and an expert on IP even though he is not competent to even sit for the patent bar.  It is also interesting that two articles from IPWatchdog were cited in the Petition, another article from another patent blog and several online magazines.  Academic publications on patent law are not where the real scholarship is occurring in today’s world and academic publications on patents for at least a century have been dominated by people (charlatans) like ‘professor’ Mark Lemley.

Part of the Petition’s argument is:

What makes the current state of legal disarray completely intolerable is that patented inventions are the engine of much of the nation’s and the world’s economic growth, which will be needlessly stifled unless the standards for patentability are much clearer than they are today.

I believe that if Alice is going to win its case at the Supreme Court (assuming the petition is granted) it is going to be vitally important to prove this statement.  It is not a foregone conclusion that all the Supreme Court Justices agree with the above statement.  For instance, I do not believe Justice Breyer would necessarily agree with the above statement.  Many of the Supreme Court’s patent opinions have been littered with antitrust language and analytic techniques.  Anyone who uses the framework of antitrust to discuss patents is inherently opposed to any patents being issued or found valid.

 

Keys to this Case for Alice

0) Moral Story

Alice has to show that they are the good guy.  Alice must show they spent years and millions of dollars developing and deploying the technology.  Alice must show that when the market was taking off CLS Bank entered it and stole their efforts.  If true Alice should play up that CLS Bank is bigger, better connected, has huge investors, etc.?  While this mainly appeals to emotions, many Judges are just too lazy to wade through the logic of the law and facts (this particularly true in patent cases), so Alice needs to be seen as the white hat.

 

1) Definitions

Patent law is littered with undefined or poorly defined terms.  Poorly defined terms result in sloppy thinking.  Besides Scalia, whose record on patent cases is poor, does respond to definitions and does Thomas.  Here are some terms that should be defined.

INVENTION: An invention is a human creation that has an objective result.  Why is it important to define what an invention is separate from the statute?  Because we need to know if the statute and the Judicially created exceptions make sense in terms of the Constitution, which states that Congress protect the RIGHTS of inventors.

It is vital to get the Justices to understand that an invention is a combination of existing or known elements and connections or steps and connections.  This is a basic law of physics, namely conservation of matter and energy.

INVENTOR: An inventor is the first person to create and invention.  The inventor may not receive patent rights in their invention for various reasons, but it is important to understand what an inventor is.

PROPERTY RIGHTS: Property rights are derived from creations and the creator is the owner.  This is a straight forward modern language version of Locke and can be found in Blackstone’s Commentaries on the Laws of England, and early English case law on hunting and in the Homestead Act in the US.  This will appeal to the traditionalist on the court.

MONOPOLY:  A monopoly (de jure) is an exclusive legal right to a market.  A patent to a method of making salt might cover the closed pan production under vacuum method.  If you own this patent, you cannot stop me from selling salt from a salt mine or a solar evaporation manufacturer.  If you have been given a monopoly by the government to salt however and I start selling or producing salt by any method, you can legally stop me.  (Note that since a patent is a legal right, then the correct definition for a monopoly is a de jure monopoly)  You can bet that CLS will be using all sorts of antitrust language in their brief and at oral argument and failure to address it upfront will significantly increase the chance of an adverse outcome.

ABSTRACT IDEA: Judges have purposely avoided defining this term so they could play fast and loose with their logic.  It is important to put forward a good definition.  This will be important particularly for Scalia and Thomas.  Here is what I said at Alice Corp Abstract Ideas.

                Some of the potential definitions of “Abstract” from Dictionary.com are provided below:

 

1. Considered apart from concrete existence: an abstract concept.

2. Not applied or practical; theoretical. See Synonyms at theoretical.

3. Difficult to understand; abstruse: abstract philosophical problems.

4. Thought of or stated without reference to a specific instance: abstract words like truth and justice.

5. Impersonal, as in attitude or views.

6. Having an intellectual and affective artistic content that depends solely on intrinsic form rather than on narrative content or pictorial representation: abstract painting and sculpture.

Clearly the first or second definitions appear to be the closest to what the Supreme Court means when speaking of patents.  Now here are some of the definitions of “idea” from the same source.

1. Something, such as a thought or conception, that potentially or actually exists in the mind as a product of mental activity.

2. An opinion, conviction, or principle: has some strange political ideas.

3. A plan, scheme, or method.

4. The gist of a specific situation; significance: The idea is to finish the project under budget.

5. A notion; a fancy.

The first definition appears to be the most appropriate.  So what we end up with is a thought or conception that is separate from concrete existence or not applied to the practical.  None of the judges using the “Abstract Idea” standard have bothered to define what they mean by these words.  In the broadest sense of the word abstract, every patent defines an invention that has been abstracted.  An invention by definition is an abstraction or a category of things.  If this is what the judges mean, then the standard is complete nonsense, since it negates every patent.

2) Prove patents do increase the growth of the economy and increase our level of technology.

Failure to provide a strong argument for this point will result in a certain loss for Alice.  Judges who believe patents retard economic growth are very unlikely to find a patent valid.

Here are some papers/books on point:

Erstling, Jay, “Korea’s Patent Policy and Its Impact on Economic Development: A Model for Emerging Countries?” (2010). Faculty Scholarship. Paper 138. http://open.wmitchell.edu/facsch/138.

Hu , Albert G.Z. and Png , I.P.L., Patent Rights and Economic Growth: Evidence from Cross-Country Panels of Manufacturing Industries, August, 2010.

The causal relationship between patent growth and growth of GDP with quarterly data in the G7 countries: cointegration, ARDL and error correction models http://mpra.ub.uni-muenchen.de/33153/

R&D, Invention and Economic Growth: An Empirical Analysis, by Professor Hulya Ulku http://www.gbv.de/dms/zbw/558276474.pdf

Are Patents Relevant? https://hallingblog.com/are-patents-relevant/

Source of Economic Growth https://hallingblog.com/source-of-economic-growth/

The Invisible Edge http://www.amazon.com/The-Invisible-Edge-Strategy-Intellectual/dp/1591842379/ref=sr_1_1?ie=UTF8&qid=1378854719&sr=8-1&keywords=the+invisible+edge The book The Invisible Edge, in chapter 8, makes a compelling case that the recession of the 1970s was largely due to the Federal Trade Commission’s (FTC) antitrust policies that limited the value of patents owned by U.S. companies.

The Most Powerful Idea in the World: A Story of Steam, Industry, and Invention http://www.amazon.com/The-Most-Powerful-Idea-World/dp/0226726347/ref=sr_1_1?ie=UTF8&qid=1378854945&sr=8-1&keywords=The+Most+Powerful+Idea+in+the+World%3A+A+Story+of+Steam%2C+Industry%2C+and+Invention  Explains that property rights in inventions was the key to the Industrial Revolution.

Also creating a simple chart showing that the wealthiest countries, most technologically advanced countries, and the countries that create the bulk of the world’s inventions have the strongest patent laws.

 

2a) Patents are not monopolies

Patents are property rights because they are the result of creation which is the source of all property rights.  Inventions were not part of the Statute of Monopolies, because they were property rights not monopolies.

2b) Patents Increase information

The whole purpose of publishing patents is to increase information.  Without patents, people keep their inventions trade secrets which retards technological and economic growth.  See The Democratization of Invention: Patents and Copyrights in American Economic Development, 1790-1920 (NBER Series on Long-Term Factors in Economic Development)

This is important because a number of recent Supreme Court cases have suggested the opposite.  This book also counters the nonsense that inventors are not motivated by profit.  Patents are important to inventors obtaining a profit from their invention.  Another great book on point is Invention and Economic Growth, Jacob Schmookler 1966.

 

3) Understanding (Patent) Law

The petition does a pretty good job of this, however the Supreme Court Justices are incompetent in this area and this always bears repeating.

35 USC 101

Whoever invents or discovers any new and useful process, machine, manufacture, or composition of matter, or any new and useful improvement thereof, may obtain a patent therefor, subject to the conditions and requirements of this title.

This is a good time to introduce the definition of an invention.  The big problem is to keep the Justices for introducing a novelty analysis here because of the word new in the statute.  Or worse a nonobviousness analysis here.  Confusion favors CLS.  While I am in the minority, I do not think that the 101 analysis should be applied to the claims.  The claims define the invention, but they are not the invention.  The specification describes the invention.  The applicant is allowed to change the claims during prosecution, but the not the specification.  This is because the definition of what is my invention is different than the explanation of what I invented.  If I invented and described a new electronic circuit, but claim an artistic combination of electronic elements I should receive a 112 rejection not a 101 rejection.

35 USC 102 Novelty

This does not mean you have created something out of nothing.  An invention is a combination of existing or known elements and connections, or steps and connections.  This is a basic law of physics, namely conservation of matter and energy.

Novelty means that every element and connection (step and connection) can be found in a single prior art reference.  This is very important or the Justices will make idiotic statements about how Alice’s invention is a combination of old elements.  An example might help here.  Show that the LASER was just a combination of existing elements, connections, and known physical laws.

35 USC 103

Quickly explain that 35 USC 103 is meant to deny patents to trivial inventions (note this violates the Constitution).  In order for a claim to be rejected under 103 there must be a group of references that show every element and connection.  However, there has to be strict motivation for combining these references, because every invention is a combination of known elements (Conservation of matter and energy).  Without this limitation all patents are invalid.

35 USC 112

This section requires the inventor explain to the world how to build his invention.  This is important because of the stupid statements by the Justice that patents suppress information.  Might be a good time to quote The Democratization of Invention: Patents and Copyrights in American Economic Development, 1790-1920 (NBER Series on Long-Term Factors in Economic Development)

Designing Around a Patent

Patent encourage new technologies be incentivizing people to create alternative (design around) inventions that accomplish the same result.  Quote Chisum on Patents.  This would be a good time to define escrow.  “Escrow means Money, property, a deed, or a bond put into the custody of a third party for delivery to a grantee only after the fulfillment of the conditions specified.”  Based on this definition Alice is not even using a true escrow system.

It is also important to show that CLS Bank could have easily designed around the patent.  For instance, they could have not had two shadow accounts.  Show that CLS Bank was just lazy.  Make an analogy of failing to do a title search (survey) for land before you undertake construction of a building.  This makes them look like the bad guy.  This is a great place to play up the morality of CLS theft and their laziness.  This also avoids the argument of preemption of a whole technology.

 

4) Understanding the Technology

Alice must explain what a computer is and what software is.  Software is a way of wiring an electronic circuit, specifically a computer.  Originally computers were wired by technicians.  Then people realized it would be more efficient to build a machine, generally called a compiler, which converts symbols or words into wiring instructions.  Either way a software enabled invention is just a claim to an electronic circuit.  (A short history of how software was developed might make sense)

Now would be a good time to introduce the definition of an Abstract Idea.  A computer is not an abstract idea, it uses electrical power, generates heat, causes electrons to move.  Those are all real world effects.

This would also be the time to show that money is not abstract.  Money represents units of computers, or ICs, or gasoline and these items are consumed, moved, assembled based on these transactions.  Also an analogy to patents on error correction codes or encryption schemes, where the final product is just electronic data might also help.  For more information see Is Money an Abstract Idea?

 

The Supreme Court is not qualified to hear patent cases, so Alice will have an uphill battle if they are going to win this case.  Unfortunately, I believe the Supreme Court is likely to further degrade patent law if they grant cert for this case.

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September 12, 2013 - Posted by | -Law, News, Patents | ,

13 Comments »

  1. FYI Robert Reisch debunks libertarian ideas about natural rights and “free market”:

    In reality, the “free market” is a bunch of [government imposed] rules about (1) what can be owned and traded (the genome? slaves? nuclear materials? babies? votes?); (2) on what terms (equal access to the internet? the right to organize unions? corporate monopolies? the length of patent protections? ); (3) under what conditions (poisonous drugs? unsafe foods? deceptive Ponzi schemes? uninsured derivatives? dangerous workplaces?) (4) what’s private and what’s public (police? roads? clean air and clean water? healthcare? good schools? parks and playgrounds?); (5) how to pay for what (taxes, user fees, individual pricing?). And so on.

    http://www.huffingtonpost.com/robert-reich/free-market_b_3935173.html

    Comment by step back | September 18, 2013 | Reply

  2. Please release me from spam jail –thanks 🙂

    Comment by step back | September 18, 2013 | Reply

  3. Stepback,

    That is a bunch of nonsense and it is only possible to spew such nonsense if you do not understand property rights, logic and reason

    Comment by dbhalling | September 18, 2013 | Reply

  4. Stepback,

    By the way did you see this article by David Kline and Jon Dudas.
    http://www.forbes.com/sites/forbesleadershipforum/2013/09/17/thank-the-founding-fathers-for-the-open-market-in-patents/

    Great article, but what is with Dudas pretending to be a friend of the patent system? Is this paid lobbying? Is his firm looking to drum up litigation business? I do not believe he gives a damn about the patent system.

    Comment by dbhalling | September 18, 2013 | Reply

  5. No hadn’t seen it.
    Thanks for the link.

    BTW, in most large companies the inventor is very often a NPE who hands off the responsibility of actually “working” an embodiment (just one) of the invention to other departments or to outsourced other companies.

    I think one recent attorney had it right in labeling “troll calling” as a hate crime. After all, inventors are an insular minority.

    Comment by step back | September 19, 2013 | Reply

  6. Stepback,

    Did you see the case where a state judge almost ruled that an assignment was not effective because the wife, under state law, owned half the assets and had not signed an assignment? This is going to make assignments fun.

    Comment by dbhalling | September 19, 2013 | Reply

  7. “And going forward, the biggest winners will be patients, who can look forward to better and cheaper diagnostics, unhindered by litigious DNA IP holders.”

    –http://blog.lifesciencenation.com/2013/09/19/five-major-points-of-impact-from-supreme-court-gene-patent-ruling/

    (Let the unleashed innovation come forth! Abra Cadabra! 😉 )

    Comment by step back | September 19, 2013 | Reply

  8. another spam release needed 😦

    Comment by step back | September 19, 2013 | Reply

  9. The excuse for stealing someone’s property is always that it will help someone today – but never about what will happen tomorrow. “Just imagine all the people we could feed if those evil farmers were not charging for their food.”

    I was asked as part of an author interview it “information should be free.” Here was my responseDo you believe that information should be free? Does that include fiction, why, and to what extent?

    What a very interesting question, since this is part of what our book, Pendulum of Justice, deals with. Information cannot be free literally, because it takes time, talent and resources to create and disseminate information. So it is never free, the question you really mean to ask is who should pay for creating or disseminating information? Should the inventor or author be compensated for their efforts? If so how should they be compensated? In history, there have been two basic ways of compensating authors and inventors: 1) providing prizes, stipends, annuities, (e.g, a poet laureate) or 2) providing them with property rights. The US Constitution selected the second method. Some societies selected neither. Not to delve too far into this but if property rights are given to authors and inventors, it may make business sense to give some or all of the information away for free.

    You need to read my new book. Pendulum of Justice http://www.amazon.com/Pendulum-Justice-Rangar-Thriller-ebook/dp/B00EUNA7YC/ref=sr_1_1?ie=UTF8&qid=1379608017&sr=8-1&keywords=dk+halling

    Comment by dbhalling | September 19, 2013 | Reply

  10. Dale, you’re not going to like my frank answer about PoJ.
    I did download the free sample into my kindle and started reading.
    What I look for first in any sample is the writer’s literary style.
    Now I don’t want you to give up and quit. There are some really good TED-talks on the number of hours it takes ANY PERSON to become a master at a particular skill (chess, martial arts, … yes, even writing). The answer is that you’ve got to put in your hours. No one is born with “natural” skills. They are all learned over time, whether you realize it or not. Your first fiction attempt in PoJ has the opening style of: “It was a dark and stormy night …”, if you know what that means . Sorry. I had to be frank about that. But keep working on it. Pay attention to how other writers grab the reader’s attention and pull them into the emotional undertow of the story. The most important thing is to get the reader to “care” about the protagonist(s). I didn’t develop any realistic attachment to the characters in your opening chapter.

    Comment by step back | September 19, 2013 | Reply

  11. I am sure that our style is not going please everyone. I don’t like Tolstoy, Kurt Vonnegut, etc. But most people who have read our novel very much liked the Prologue.

    Comment by dbhalling | September 26, 2013 | Reply

  12. “Software is a way of wiring an electronic circuit, specifically a computer. Originally computers were wired by technicians. Then people realized it would be more efficient to build a machine, generally called a compiler, which converts symbols or words into wiring instructions. Either way a software enabled invention is just a claim to an electronic circuit. ”

    Where on earth did you get that from? Did you make it up yourself? If you’re going to try to cite that as a fact, then you need some substantial evidence to back it up. You’ll find that such substantial evidence is sorely lacking.

    Comment by 6 | November 10, 2013 | Reply

  13. 6 your ignorance of computers and how they work could fill the Library of Congress. Perhaps, you should try reading about computers.

    Comment by dbhalling | November 10, 2013 | Reply


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